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Feb 2016
The US shale oil and gas data shows a sharp increase in new well productivity over the last one year
8This happened even as there is a sharp drop in rig count.
8What is more, the rate of fall in oil and gas production is lower than what it was one year ago.
8The fall in rig count has been noticed across all US shale blocks but the increase in new rig productivity has cushioned the fall in output.
8Clearly, the Americans have figured out how to raise efficiency levels sharply in the face of a crash in the price of oil and gas.
8Higher efficiency levels coupled with a fall in cost of equipment and services now mean that the break even points for shale plays in the US have come down sharply
Click on Reports for more Details
8This happened even as there is a sharp drop in rig count.
8What is more, the rate of fall in oil and gas production is lower than what it was one year ago.
8The fall in rig count has been noticed across all US shale blocks but the increase in new rig productivity has cushioned the fall in output.
8Clearly, the Americans have figured out how to raise efficiency levels sharply in the face of a crash in the price of oil and gas.
8Higher efficiency levels coupled with a fall in cost of equipment and services now mean that the break even points for shale plays in the US have come down sharply
Click on Reports for more Details
Will Australian suppliers be willing to enter into the kind of deal that Exxon-Mobil got into with Petronet LNG Ltd (for 1.44 MMTPA of LNG) for its Gorgon LNG project in Australia?
8LIke with PLL's deal with Qatar, this one too is purely linked to the Japanese Custom-cleared Crude (JCC) price.
8But the price is a straight forward linear relationship with the JCC price without a floor and a ceiling.
8This of course pushed the potential price of Gorgon cargoes sky high when the price of crude was higher.
8But now that crude prices have gone down, the formula will allow for a competitive price.
8What is more, just like with Qatar, the FOB price builds in the liquefaction cost.
8The only element that is going to be expensive is the shipping cost from Australia which is more than twice the cost from Qatar to India.
8This may make the Gorgon price around $0.50-$1/mmbtu higher than the Qatari price.
8Is it possible for India and Australia to improve on the PLL price for Gorgon LNG by lowering the slope a little?
8Clearly the slope is already very low and at current crude prices it will be difficult for LNG projects in Australia to breakeven.
8But then these are difficult times and nothing can be ruled out
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8LIke with PLL's deal with Qatar, this one too is purely linked to the Japanese Custom-cleared Crude (JCC) price.
8But the price is a straight forward linear relationship with the JCC price without a floor and a ceiling.
8This of course pushed the potential price of Gorgon cargoes sky high when the price of crude was higher.
8But now that crude prices have gone down, the formula will allow for a competitive price.
8What is more, just like with Qatar, the FOB price builds in the liquefaction cost.
8The only element that is going to be expensive is the shipping cost from Australia which is more than twice the cost from Qatar to India.
8This may make the Gorgon price around $0.50-$1/mmbtu higher than the Qatari price.
8Is it possible for India and Australia to improve on the PLL price for Gorgon LNG by lowering the slope a little?
8Clearly the slope is already very low and at current crude prices it will be difficult for LNG projects in Australia to breakeven.
8But then these are difficult times and nothing can be ruled out
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No other country illustrates the havoc that low oil prices can wreck than Venezuela.
8Real wages fell by 35% last year and 76% of Venezuelans are now poor, up from 55% in 1998.
8The government has admitted that in the 12 months to September 2015 the economy contracted by 7.1% and inflation was up by 141.5%. The IMF believes that inflation will surge to 720% this year and that the economy will shrink by 8%, after contracting by 10% in 2015. The Central Bank is printing money to cover much of a fiscal deficit of around 20% of GDP.
8Looting and rioting over food has now become commonplace in the country. Some observers claim that the country is on the brink and only days away from descending into complete chaos. Crime is now out of control.
8Most other economies are not in as bad a shape as Venezuela but the situation is also pretty bad in countries such as Nigeria.
8The Gulf countries are well protected so far, and even though Saudi Arabia's fiscal breakeven price is higher at $103/bbl in comparison to Venezuela's $89/bbl, the Gulf nation has a $600 billion cash pile compared to Venezuela's reserves of a puny $1.5 billion.
8But if prices continue to remain low, the Gulf countries will not be spared. Saudi Arabia has already spent $100 billion out of its reserves.
8The restive populations in these countries have been kept under leash so far with lavish state subsidies but once the squeeze comes in, there is no guarantee that people will not rise up against their autocratic rulers.
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8Real wages fell by 35% last year and 76% of Venezuelans are now poor, up from 55% in 1998.
8The government has admitted that in the 12 months to September 2015 the economy contracted by 7.1% and inflation was up by 141.5%. The IMF believes that inflation will surge to 720% this year and that the economy will shrink by 8%, after contracting by 10% in 2015. The Central Bank is printing money to cover much of a fiscal deficit of around 20% of GDP.
8Looting and rioting over food has now become commonplace in the country. Some observers claim that the country is on the brink and only days away from descending into complete chaos. Crime is now out of control.
8Most other economies are not in as bad a shape as Venezuela but the situation is also pretty bad in countries such as Nigeria.
8The Gulf countries are well protected so far, and even though Saudi Arabia's fiscal breakeven price is higher at $103/bbl in comparison to Venezuela's $89/bbl, the Gulf nation has a $600 billion cash pile compared to Venezuela's reserves of a puny $1.5 billion.
8But if prices continue to remain low, the Gulf countries will not be spared. Saudi Arabia has already spent $100 billion out of its reserves.
8The restive populations in these countries have been kept under leash so far with lavish state subsidies but once the squeeze comes in, there is no guarantee that people will not rise up against their autocratic rulers.
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Goyal is now pushing for Australian LNG producers to wade downstream and set up gas based plants in India.
8What the minister is astutely trying to sell is a complete package, where the producer of gas liquefies, transports and then regasifies gas in India to produce power.
8Goyal is thinking smart by trying to induce LNG producers to go down the value chain as they are currently under great strain because of a fear that new Australian LNG capacities may stay under utilized in a scenario where supply is going to exceed demand.
8The power minister has in fact gone a step further by insisting that LNG based power be supplied at 5 cents/kwh, at about the same price as the cost of coal fired power.
8Goyal also said, while speaking to industry leaders in Australia, that India would be willing to get into long term gas supply arrangement for supply of LNG for power plants provided the price is right.
8Accompanying the minister was a senior executive from GAIL who explained that gas pipeline infrastructure was in place in India to support an LNG led increase in power generation. Only about 50% of the total gas pipeline capacity was exploited at the moment, he pointed out.
8To take the idea further, an LNG sub-group has now been created under the joint leadership of a joint secretary in the petroleum ministry and a senior Australian official. They will be further supported by an operating team as well as representatives from NTPC, GAIL, Petronet LNG and shipping companies. The sub-group will create a roadmap over the next two months on how Australian LNG companies can participate more proactively in the Indian power sector.
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8What the minister is astutely trying to sell is a complete package, where the producer of gas liquefies, transports and then regasifies gas in India to produce power.
8Goyal is thinking smart by trying to induce LNG producers to go down the value chain as they are currently under great strain because of a fear that new Australian LNG capacities may stay under utilized in a scenario where supply is going to exceed demand.
8The power minister has in fact gone a step further by insisting that LNG based power be supplied at 5 cents/kwh, at about the same price as the cost of coal fired power.
8Goyal also said, while speaking to industry leaders in Australia, that India would be willing to get into long term gas supply arrangement for supply of LNG for power plants provided the price is right.
8Accompanying the minister was a senior executive from GAIL who explained that gas pipeline infrastructure was in place in India to support an LNG led increase in power generation. Only about 50% of the total gas pipeline capacity was exploited at the moment, he pointed out.
8To take the idea further, an LNG sub-group has now been created under the joint leadership of a joint secretary in the petroleum ministry and a senior Australian official. They will be further supported by an operating team as well as representatives from NTPC, GAIL, Petronet LNG and shipping companies. The sub-group will create a roadmap over the next two months on how Australian LNG companies can participate more proactively in the Indian power sector.
Click on Reports for more Details
In what is being seen as a shrewd move, power minister Piyush Goyal has asked Australian LNG producers to find a way out of the current slump by setting up LNG based power plants in India.
8India's massive solar power expansion -- adding a gigantic 175 GW of solar power capacity over the next 7 years -- has necessitated the need for many gas based stations to support this capacity.
8Gas based power plants will have to act as spinning reserve, supplying power when the sun sets and the solar power capacity goes off grid.
8Without these peaking power stations it will be impossible for India to be fully exploit the solar power capacity that is currently being set up.
8India's commitment to lower emission levels also make it extremely difficult to go ahead with new coal fired capacity at breakneck speed. And in any case coal stations work as base load stations and do not usually cater to peaking power requirements.
8So in other words, India's massive solar power expansion will require a concomitant increase in cleaner gas based power.
8Without power plants that can be put on the grid at short notice like gas based stations could be, the solar revolution in India will induce a grid collapse every time 175 GW of power is switched off when the sun sets.
8The only way out is for stabilizing loads to be brought in quickly in the evening.
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8India's massive solar power expansion -- adding a gigantic 175 GW of solar power capacity over the next 7 years -- has necessitated the need for many gas based stations to support this capacity.
8Gas based power plants will have to act as spinning reserve, supplying power when the sun sets and the solar power capacity goes off grid.
8Without these peaking power stations it will be impossible for India to be fully exploit the solar power capacity that is currently being set up.
8India's commitment to lower emission levels also make it extremely difficult to go ahead with new coal fired capacity at breakneck speed. And in any case coal stations work as base load stations and do not usually cater to peaking power requirements.
8So in other words, India's massive solar power expansion will require a concomitant increase in cleaner gas based power.
8Without power plants that can be put on the grid at short notice like gas based stations could be, the solar revolution in India will induce a grid collapse every time 175 GW of power is switched off when the sun sets.
8The only way out is for stabilizing loads to be brought in quickly in the evening.
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The arithmetic behind power minister Piyush Goyal's offer to the Australian LNG producers is based on the yawning gap between supply and demand for LNG that is likely to keep prices down for several years.
8Demand-supply projection data carried here by this website shows that 132 MMTPA of additional LNG capacity is now under construction.
8By the first quarter of 2016, it is estimated that new capacity equal to 45% of existing capacity will come on stream.
8What is more, a massive 855 MMTPA of capacity is under planning.
8This planned capacity is as much as 12 times the projected demand by the year 2025.
8Clearly, there is a massive oversupply in the LNG market right up to the foreseeable future.
8There is no doubt it is a buyers market, where suppliers will have to depend on the spot market in the absence of long term contracts.
8The data also shows that LNG capacity will be way above contracted quantities for the next five years, even when planned capacity expansions are not taken into account.
8Clearly LNG suppliers are a cornered lot today and they are forced to look at new markets and business models.
8And Goyal knew this fact when he made the offer to the Australians to enter into long term contracts for LNG supply, provided the price is right.
Click on Reports for more Details
8Demand-supply projection data carried here by this website shows that 132 MMTPA of additional LNG capacity is now under construction.
8By the first quarter of 2016, it is estimated that new capacity equal to 45% of existing capacity will come on stream.
8What is more, a massive 855 MMTPA of capacity is under planning.
8This planned capacity is as much as 12 times the projected demand by the year 2025.
8Clearly, there is a massive oversupply in the LNG market right up to the foreseeable future.
8There is no doubt it is a buyers market, where suppliers will have to depend on the spot market in the absence of long term contracts.
8The data also shows that LNG capacity will be way above contracted quantities for the next five years, even when planned capacity expansions are not taken into account.
8Clearly LNG suppliers are a cornered lot today and they are forced to look at new markets and business models.
8And Goyal knew this fact when he made the offer to the Australians to enter into long term contracts for LNG supply, provided the price is right.
Click on Reports for more Details
How exactly the Australians are going to handle the Indian power minister's offer remains to be seen.
8The current LNG price is so low that it does not cover the LNG infrastructure cost, leave along the upstream cost for greenfield Australian projects.
8Brownfield projects in Australia have a lower cost structure, but upstream costs contribute a higher percentage of total cost compared to greenfield projects.
8It is turning out to be a grim game for Australian suppliers as LNG prices are nowhere near breakeven cost for them.
8In fact the data carried here shows that greenfield Australian LNG is among the highest cost LNG in the world, and their costs are significantly higher than the LNG coming out of West Africa, US and Canada.
8So will there be any takers for Goyal's offer to LNG suppliers to build power plants in India to produce electricity at 5 cents/Kwh?
8The answer can, surprisingly, be a "yes", perhaps not at 5 cents/kwh but at a price that can well be lower than the breakeven price.
8This is because of the simple fact that if there are positive cash flows, and when the variable cost is covered and fixed costs are partially paid for, it will always be more profitable for an LNG supplier to carry on supplying rather than shutting down his terminal.
8It will be near impossible however for India to strike a long term deal at a price that does not ensure break-even for suppliers in Australia.
8Eventually of course it will be up to the India-Australia Sub-Group to figure out what could be a viable way forward.
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8The current LNG price is so low that it does not cover the LNG infrastructure cost, leave along the upstream cost for greenfield Australian projects.
8Brownfield projects in Australia have a lower cost structure, but upstream costs contribute a higher percentage of total cost compared to greenfield projects.
8It is turning out to be a grim game for Australian suppliers as LNG prices are nowhere near breakeven cost for them.
8In fact the data carried here shows that greenfield Australian LNG is among the highest cost LNG in the world, and their costs are significantly higher than the LNG coming out of West Africa, US and Canada.
8So will there be any takers for Goyal's offer to LNG suppliers to build power plants in India to produce electricity at 5 cents/Kwh?
8The answer can, surprisingly, be a "yes", perhaps not at 5 cents/kwh but at a price that can well be lower than the breakeven price.
8This is because of the simple fact that if there are positive cash flows, and when the variable cost is covered and fixed costs are partially paid for, it will always be more profitable for an LNG supplier to carry on supplying rather than shutting down his terminal.
8It will be near impossible however for India to strike a long term deal at a price that does not ensure break-even for suppliers in Australia.
8Eventually of course it will be up to the India-Australia Sub-Group to figure out what could be a viable way forward.
Click on Reports for more Details
LNG suppliers across the would are watching out for how Qatar will react to anyone who wants offer low price LNG to Asian markets, particularly to India, where Qatar has a supply monopoly.
8The fact that Qatar was able to set a price low enough while negotiating a fresh deal with Petronet LNG Ltd to keep GAIL's LNG cargoes from the US out of the Indian market is evident of the fact that the Qatar can play hard ball to keep other competitors out.
8The big advantage that Qatar has is the low freight cost to India.
8The other plus point is that Qatar's cost of production or its breakeven point is significantly lower than that of greenfield players in Australia and other countries.
8So it can easily take a price cut to keep competition at bay.
8The only problem however will be whether Qatar or for that matter other West Asian countries will be able to build enough low cost capacity to satisfy what will be an inexhaustible Indian appetite for LNG.
8Qatar will quite surely be able to protect its market share in India as there are no immediate threats to its monopoly.
8But it can spoil the game for the other suppliers by keeping its price just below their breakeven levels.
Click on Reports for more Details
8The fact that Qatar was able to set a price low enough while negotiating a fresh deal with Petronet LNG Ltd to keep GAIL's LNG cargoes from the US out of the Indian market is evident of the fact that the Qatar can play hard ball to keep other competitors out.
8The big advantage that Qatar has is the low freight cost to India.
8The other plus point is that Qatar's cost of production or its breakeven point is significantly lower than that of greenfield players in Australia and other countries.
8So it can easily take a price cut to keep competition at bay.
8The only problem however will be whether Qatar or for that matter other West Asian countries will be able to build enough low cost capacity to satisfy what will be an inexhaustible Indian appetite for LNG.
8Qatar will quite surely be able to protect its market share in India as there are no immediate threats to its monopoly.
8But it can spoil the game for the other suppliers by keeping its price just below their breakeven levels.
Click on Reports for more Details
Amidst all the jostling for a slice of the Indian LNG market, the point to ponder is what is in store for the deepwater gas producers in India.
8Given that the LNG market is likely to be in an over-supply mode until 2020 or even further, the landed price of LNG in India will continue to be under downward pressure.
8There is now open talk of more and more producers making distress sales of their LNG cargoes. Suppliers may be willing to offload LNG if their variable costs are covered, with something left over to cover their fixed cost, which in any case is a sunk cost for them.
8Assuming that gas prices are freed and made market driven, it can easily be assumed that the landed price of LNG will be the ceiling price at which domestic producers can sell in India.
8So the moot point is whether ONGC or RIL-BP or GSPC will reach breakeven levels at the landed cost of LNG.
8If Piyush Goyal is pushing LNG suppliers in Australia to build power projects in India but with the caveat the the cost of power should only be 5 cents/kwh, is it possible for domestic producers to break even at these prices?
8The answer is certainly a "no".
8Domestic producers will have to fend off not just price competition from LNG suppliers but also fight pitched battles with regulators before they get to a point when they can actually produce gas.
8Local E&P operators will have to coax and cajole the government to put together other complementary measures in place to be able to get their deepwater discoveries into the development mode.
8Unless the Production Sharing Regime (PSC) is modified to take into account delays in the implementation of development plans on account of the challenges faced in making such projects viable, local operators will not be able to go ahead.
8Will the government be accommodative enough?
8That is something only time will tell.
Click on Reports for more Details
8Given that the LNG market is likely to be in an over-supply mode until 2020 or even further, the landed price of LNG in India will continue to be under downward pressure.
8There is now open talk of more and more producers making distress sales of their LNG cargoes. Suppliers may be willing to offload LNG if their variable costs are covered, with something left over to cover their fixed cost, which in any case is a sunk cost for them.
8Assuming that gas prices are freed and made market driven, it can easily be assumed that the landed price of LNG will be the ceiling price at which domestic producers can sell in India.
8So the moot point is whether ONGC or RIL-BP or GSPC will reach breakeven levels at the landed cost of LNG.
8If Piyush Goyal is pushing LNG suppliers in Australia to build power projects in India but with the caveat the the cost of power should only be 5 cents/kwh, is it possible for domestic producers to break even at these prices?
8The answer is certainly a "no".
8Domestic producers will have to fend off not just price competition from LNG suppliers but also fight pitched battles with regulators before they get to a point when they can actually produce gas.
8Local E&P operators will have to coax and cajole the government to put together other complementary measures in place to be able to get their deepwater discoveries into the development mode.
8Unless the Production Sharing Regime (PSC) is modified to take into account delays in the implementation of development plans on account of the challenges faced in making such projects viable, local operators will not be able to go ahead.
8Will the government be accommodative enough?
8That is something only time will tell.
Click on Reports for more Details
There are all types of pundits in the oil industry and while one set predicts that prices will never rise again, there is another that is resolute in the belief that prices will scale the $100/bbl mark sooner rather than later.
Data thrown up by a recent presentation gives the following breakeven price per barrel of crude:
8Onshore Middle East: $27
8Offshore Shelf: $41
8Onshore Russia: $50
8Onshore RoW: $51/bbl
8Deepwater: $52
8Ultra Deepwater: $58
8US Shale: $65
8Old Sands: $70
8Arctic: $75
8To this is to be added $20-$25/bbl for G&A expenses, plus cost of debt of these production breakeven costs.
8Most oil companies then need $100 plus per barrel just to break even.
8The same presentation goes on to claim that world demand will continue to rise at 1 million barrels per day.
8The increase is going to come from China and India. Demand will go up in China as its 1.3 billion people demand more energy as their wealth grows while India's growth will come from its size and population and the fact that it has a lot of catch up to do.
Click on Reports for more Details
Data thrown up by a recent presentation gives the following breakeven price per barrel of crude:
8Onshore Middle East: $27
8Offshore Shelf: $41
8Onshore Russia: $50
8Onshore RoW: $51/bbl
8Deepwater: $52
8Ultra Deepwater: $58
8US Shale: $65
8Old Sands: $70
8Arctic: $75
8To this is to be added $20-$25/bbl for G&A expenses, plus cost of debt of these production breakeven costs.
8Most oil companies then need $100 plus per barrel just to break even.
8The same presentation goes on to claim that world demand will continue to rise at 1 million barrels per day.
8The increase is going to come from China and India. Demand will go up in China as its 1.3 billion people demand more energy as their wealth grows while India's growth will come from its size and population and the fact that it has a lot of catch up to do.
Click on Reports for more Details
LNG shipping earnings will remain under pressure in 2016 as accelerating fleet growth and changing trade patterns will weaken supply-demand conditions.
8LNG vessel fleet growth is forecast to double this year to 12%, compared to 6% in 2015.
8Meanwhile, as new sources of LNG supply kick in from projects coming online in Australia, demand for spot cargoes from the Middle East are expected to weaken which will adversely affect overall tonne mile demand for LNG shipping.
8The final quarter of 2015 was disappointing for LNG shipowners.
8Spot rates for the quarter were $30,000 per day for East of Suez shipments, which was unchanged from the third quarter and 57% down on the previous year.
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8LNG vessel fleet growth is forecast to double this year to 12%, compared to 6% in 2015.
8Meanwhile, as new sources of LNG supply kick in from projects coming online in Australia, demand for spot cargoes from the Middle East are expected to weaken which will adversely affect overall tonne mile demand for LNG shipping.
8The final quarter of 2015 was disappointing for LNG shipowners.
8Spot rates for the quarter were $30,000 per day for East of Suez shipments, which was unchanged from the third quarter and 57% down on the previous year.
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LNG vessels were in over supply in the fourth quarter of 2015, according a recent research report.
8There was an excess supply of 38 vessels in the final quarter, three vessels higher than in the third quarter.
Vessel oversupply was exacerbated by the fact that four new ships joined the fleet during the fourth quarter.
8In the year ahead, vessel deliveries are expected to accelerate to 53 while demolitions will be limited to just three.
8So clearly, 2016 will witness a vessel over-supply scenario.
8Meanwhile, growing LNG supply in Asia-Pacific will reduce the dependency of Asian buyers on Middle Eastern supply which will weigh on tonne mile demand, diminishing overall LNG shipping demand.
8Therefore there is unlikely to be any let-up in vessel overcapacity in 2016.
Click on Reports for more Details
8There was an excess supply of 38 vessels in the final quarter, three vessels higher than in the third quarter.
Vessel oversupply was exacerbated by the fact that four new ships joined the fleet during the fourth quarter.
8In the year ahead, vessel deliveries are expected to accelerate to 53 while demolitions will be limited to just three.
8So clearly, 2016 will witness a vessel over-supply scenario.
8Meanwhile, growing LNG supply in Asia-Pacific will reduce the dependency of Asian buyers on Middle Eastern supply which will weigh on tonne mile demand, diminishing overall LNG shipping demand.
8Therefore there is unlikely to be any let-up in vessel overcapacity in 2016.
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Clearly, a lot is needed to be done to ensure that the petrochemical sector can thrive in India.
Among the many observations on improving the prospects of the sector are:
8Faster growth in petrochemicals need a balanced growth of Indian economy and measures need to be taken to increase the share of manufacturing in GDP, from the current 15% to 25% by 2022.
8India has one of the highest indirect tax incidences. Indirect tax reforms are required to bring in uniformity in rates across India and also to put a check on cascading effects of the existing central and state VAT system
8Key petrochemical inputs such as naphtha should also fall under a national level VAT/GST regime at a uniform rate across states, with complete input tax credit.
8There is a need for duty rationalization going up the petrochemical value chain so that tariff level differentials for each link of the chain is positive.
8Duality in fiscal structure has resulted in a high cost economy that discourages local investment
8There are therefore compelling reasons to remove duty anomalies prevailing in this sector so that domestic investment becomes financially viable.
8As a result of under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13%of GDP, compared to less than 10%of GDP in almost entire Western Europe and North America.
Among the regulatory initiatives that are needed to be taken to promote petrochemical demand growth are:
--Mandatory standardization of products
--Promoting energy efficient building codes
--Aseptic packaging
--Mandatory unitized packaging of oil and other food products susceptible to adulteration
Click on Reports for more Details
Among the many observations on improving the prospects of the sector are:
8Faster growth in petrochemicals need a balanced growth of Indian economy and measures need to be taken to increase the share of manufacturing in GDP, from the current 15% to 25% by 2022.
8India has one of the highest indirect tax incidences. Indirect tax reforms are required to bring in uniformity in rates across India and also to put a check on cascading effects of the existing central and state VAT system
8Key petrochemical inputs such as naphtha should also fall under a national level VAT/GST regime at a uniform rate across states, with complete input tax credit.
8There is a need for duty rationalization going up the petrochemical value chain so that tariff level differentials for each link of the chain is positive.
8Duality in fiscal structure has resulted in a high cost economy that discourages local investment
8There are therefore compelling reasons to remove duty anomalies prevailing in this sector so that domestic investment becomes financially viable.
8As a result of under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13%of GDP, compared to less than 10%of GDP in almost entire Western Europe and North America.
Among the regulatory initiatives that are needed to be taken to promote petrochemical demand growth are:
--Mandatory standardization of products
--Promoting energy efficient building codes
--Aseptic packaging
--Mandatory unitized packaging of oil and other food products susceptible to adulteration
Click on Reports for more Details
Prime Minister Narender Modi did inaugurate the 15 MMTPA Paradip refinery with much fanfare on February 7, 2016.
8The focus of the inauguration was on IOC's "indigenously developed" 4.17 MMTPA INDMAX unit that will convert low volume components such as Block Oils and Low Distillation Bottoms to generate higher value added products like LPG.
8The unit supposedly dovetails nicely into the Prime Minister Made in India campaign.
8But does IOC deserve the credit for developing this technology?
8The licensor of the INDMAX FCC Unit is Lummus Technology, so what really is IOC's contribution here?
8Another INDMAX unit is the Gasoline De-sulphurization unit that is used to strip sulphur from Light and Heavy INDMAX gasoline to achieve higher fuel quality specifications. The technology for this comes from Axens
8The engineering designs are given by the licensors and all that IOC needs to do is get an LSTK contractor to work on the designs and undertake the necessary engineering and put the project together within the overall refinery configuration.
8It is time for IOC to come clear on what it means when it said that the INDMAX unit was an indigenous engineering feat for which the credit should go to the R&D division of the company.
Click on Reports for more Details
8The focus of the inauguration was on IOC's "indigenously developed" 4.17 MMTPA INDMAX unit that will convert low volume components such as Block Oils and Low Distillation Bottoms to generate higher value added products like LPG.
8The unit supposedly dovetails nicely into the Prime Minister Made in India campaign.
8But does IOC deserve the credit for developing this technology?
8The licensor of the INDMAX FCC Unit is Lummus Technology, so what really is IOC's contribution here?
8Another INDMAX unit is the Gasoline De-sulphurization unit that is used to strip sulphur from Light and Heavy INDMAX gasoline to achieve higher fuel quality specifications. The technology for this comes from Axens
8The engineering designs are given by the licensors and all that IOC needs to do is get an LSTK contractor to work on the designs and undertake the necessary engineering and put the project together within the overall refinery configuration.
8It is time for IOC to come clear on what it means when it said that the INDMAX unit was an indigenous engineering feat for which the credit should go to the R&D division of the company.
Click on Reports for more Details
Clearly, rules have to be set for use of "indigenously developed" technology for captive use.
8The draft Made in India plan for the petroleum sector is meant to specify the exact level of indigenization that will be needed for different segments of the refining sector so as to be able to elicit a 10% purchase preference.
8IOC has been pushing its INDMAX units, first in Guwahati and then in Paradip and Bongaigaon on a nomination basis.
8This in effect gives an edge to Lummus Technology and Axens in relation to other licensors.
8In this context, it is important to define the "indigenous" inputs in these projects.
8If we take Bongaigaon for example, can the attempt to promote its own "R&D" turn out to be a loss to the refinery because a tender process was not adopted to select the best technology for translating black oil into value added products?
8The post tax IRR of 11.2% for the INDMAX unit in Bongaigaon is just above the hurdle rate but could there have been another licensor could have guaranteed a better IRR? Then again, will the IRR come down, now that investment subsidies have been withdrawn for the North East where the refinery is located.
8For a company like IOC, it is too late to convert itself into a process licensor because it does not pay to become one so late in the game.
8There are already licensors in the business who know how best to do these things.
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8The draft Made in India plan for the petroleum sector is meant to specify the exact level of indigenization that will be needed for different segments of the refining sector so as to be able to elicit a 10% purchase preference.
8IOC has been pushing its INDMAX units, first in Guwahati and then in Paradip and Bongaigaon on a nomination basis.
8This in effect gives an edge to Lummus Technology and Axens in relation to other licensors.
8In this context, it is important to define the "indigenous" inputs in these projects.
8If we take Bongaigaon for example, can the attempt to promote its own "R&D" turn out to be a loss to the refinery because a tender process was not adopted to select the best technology for translating black oil into value added products?
8The post tax IRR of 11.2% for the INDMAX unit in Bongaigaon is just above the hurdle rate but could there have been another licensor could have guaranteed a better IRR? Then again, will the IRR come down, now that investment subsidies have been withdrawn for the North East where the refinery is located.
8For a company like IOC, it is too late to convert itself into a process licensor because it does not pay to become one so late in the game.
8There are already licensors in the business who know how best to do these things.
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Indian public sector companies are pushing through big investments in the petrochemical sector.
8The new entrants to the game are HMEL, OPAL and MRPL.
8GAIL's petrochemical complex in Dibrugarh has also just been commissioned.
8IOC now plans to spend a whopping Rs 30,000 crore in various petrochemical segments.
8Of this, Rs 7,650 crore will go into the a petrochemical complex at Paradip for a 700,000 tonnes per annum polypropylene (PP) plant and an ethyelene derivatives complex to manufacture around 350,000 tonnes of mono-ethyelene glycols (MEG).
The rest of the money will go into the manufacture of:
8Acrylic acid/acrylates
8Oxo-alcohol and hydrocarbon resin,
8Ethylene derivatives
8Expansions in the existing product lines.
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8The new entrants to the game are HMEL, OPAL and MRPL.
8GAIL's petrochemical complex in Dibrugarh has also just been commissioned.
8IOC now plans to spend a whopping Rs 30,000 crore in various petrochemical segments.
8Of this, Rs 7,650 crore will go into the a petrochemical complex at Paradip for a 700,000 tonnes per annum polypropylene (PP) plant and an ethyelene derivatives complex to manufacture around 350,000 tonnes of mono-ethyelene glycols (MEG).
The rest of the money will go into the manufacture of:
8Acrylic acid/acrylates
8Oxo-alcohol and hydrocarbon resin,
8Ethylene derivatives
8Expansions in the existing product lines.
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IOC plans for chemical and petrochemical production is indeed very ambitious
It is looking at following specific projects:
8Acetic Acid from Petcoke Gasification
8Synthetic Ethanol from Petcoke Gasification
8Targeting Olefin Generation from Petcoke/Lean Gas
8Recovery of Styrene from PyGas
IOC is also looking at the utilization of stranded molecules for specialty chemicals and petrochemicals, including:
8Acrylates/Oxoalcohols/SAP from Propylene
8Cumene/Phenol/IPA from Propylene
8MMA/PMMA from C4’s
8DCPD/Piperlene/HCR from C5’s
8Other specialty chemicals currently imported in the country
IOC Is also looking at the possibility of setting up shale gas based petrochemical projects in the US in collaboration with other partners.
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It is looking at following specific projects:
8Acetic Acid from Petcoke Gasification
8Synthetic Ethanol from Petcoke Gasification
8Targeting Olefin Generation from Petcoke/Lean Gas
8Recovery of Styrene from PyGas
IOC is also looking at the utilization of stranded molecules for specialty chemicals and petrochemicals, including:
8Acrylates/Oxoalcohols/SAP from Propylene
8Cumene/Phenol/IPA from Propylene
8MMA/PMMA from C4’s
8DCPD/Piperlene/HCR from C5’s
8Other specialty chemicals currently imported in the country
IOC Is also looking at the possibility of setting up shale gas based petrochemical projects in the US in collaboration with other partners.
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There is a surplus of naphtha in India. The demand supply gap will continue to exist going forward.
8In this context, will naphtha crackers be cost competitive? Clearly there are advantages and disadvantages to naphtha crackers
Advantages:
8C3-C6 based streams available
8Aromatics can be produced from a naphtha cracker
8Py-gas is primarily used for gasoline blending in India. Toluene and higher aromatics can be extracted from py-gas stream from a naphtha cracker. India is significantly short in these raw materials
8Styrene needs can be met through naphtha crackers
8Target specialty products/niche grades for import substitution using the naphtha route
Concerns
8Single site feedstock availability is a problem, so pooling of naphtha will have to happen
8Then there is competition in the C2 stream with ethane based producers
8Polypropylene is already surplus in India so there is a need to find new outlets or products.
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8In this context, will naphtha crackers be cost competitive? Clearly there are advantages and disadvantages to naphtha crackers
Advantages:
8C3-C6 based streams available
8Aromatics can be produced from a naphtha cracker
8Py-gas is primarily used for gasoline blending in India. Toluene and higher aromatics can be extracted from py-gas stream from a naphtha cracker. India is significantly short in these raw materials
8Styrene needs can be met through naphtha crackers
8Target specialty products/niche grades for import substitution using the naphtha route
Concerns
8Single site feedstock availability is a problem, so pooling of naphtha will have to happen
8Then there is competition in the C2 stream with ethane based producers
8Polypropylene is already surplus in India so there is a need to find new outlets or products.
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There has always been talk for well packaged service contracts for some of ONGC's oil and gas fields, particularly where the technology can be challenging like in the case of deepwater blocks.
8Such contracts are perhaps more expensive than those in which ONGC uses a conventional bidding methodology to contract out different packages.
8But what is lost in higher costs for such service contracts can be made up by gains in efficiency and infusion of high technology.
8Take the case of Schlumberger's first completed year of an integrated exploration and appraisal contract for Statoil in offshore Newfoundland.
8The exploration and appraisal of the Flemish Pass Basin used a combination of Schlumberger technologies that improved drilling efficiency, assured wellbore integrity, and optimized placement of a well in a water depth of 2,829 m.
8Some of the multinational service provider's proprietary technology, including the PowerDrive Xceed ruggedized rotary steerable system, the Rhino XS* hydraulically expandable reamer, and the Stinger conical diamond element were deployed to achieve stable and accurate drilling to target depth.
8Then again, the company's Quanta Geo photorealistic reservoir geology service, the LithoScanner high-definition spectroscopy service, and the Sonic Scanner acoustic scanning platform were all used to characterize the complex geological formations and reduced subsurface risk.
8Deployed during a single descent, this combination of technologies saved rig time.
8Statoil listed several hole sections in this field as among their top drilling performances worldwide.
8Similarly, In Norway, Schlumberger has a three-year integrated services contract with two one-year extensions with Norway's OMV (Norge) AS for the provision of exploration and appraisal drilling services on the Norwegian Continental Shelf. This included drilling fluids and waste handling, cementing, directional drilling, measurement-while-drilling, logging-while-drilling, mud logging, wireline logging, well testing, and project management services.
8ONGC can do well to learn from such service contracts and deploy them in the Indian context.
8The fact that benefits will outweigh the higher cost that will be incurred in such service contracts can always be worked out to keep detractors at bay.
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8Such contracts are perhaps more expensive than those in which ONGC uses a conventional bidding methodology to contract out different packages.
8But what is lost in higher costs for such service contracts can be made up by gains in efficiency and infusion of high technology.
8Take the case of Schlumberger's first completed year of an integrated exploration and appraisal contract for Statoil in offshore Newfoundland.
8The exploration and appraisal of the Flemish Pass Basin used a combination of Schlumberger technologies that improved drilling efficiency, assured wellbore integrity, and optimized placement of a well in a water depth of 2,829 m.
8Some of the multinational service provider's proprietary technology, including the PowerDrive Xceed ruggedized rotary steerable system, the Rhino XS* hydraulically expandable reamer, and the Stinger conical diamond element were deployed to achieve stable and accurate drilling to target depth.
8Then again, the company's Quanta Geo photorealistic reservoir geology service, the LithoScanner high-definition spectroscopy service, and the Sonic Scanner acoustic scanning platform were all used to characterize the complex geological formations and reduced subsurface risk.
8Deployed during a single descent, this combination of technologies saved rig time.
8Statoil listed several hole sections in this field as among their top drilling performances worldwide.
8Similarly, In Norway, Schlumberger has a three-year integrated services contract with two one-year extensions with Norway's OMV (Norge) AS for the provision of exploration and appraisal drilling services on the Norwegian Continental Shelf. This included drilling fluids and waste handling, cementing, directional drilling, measurement-while-drilling, logging-while-drilling, mud logging, wireline logging, well testing, and project management services.
8ONGC can do well to learn from such service contracts and deploy them in the Indian context.
8The fact that benefits will outweigh the higher cost that will be incurred in such service contracts can always be worked out to keep detractors at bay.
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Schlumberger technology was deployed by ONGC recently when the multinational introduced the patented "P3 Post-perforating Technology" to clean out perforations in a well in the public sector major's B-193 field.
8The technology was used in high sour gas conditions in the field.
8What Schlumberger created was a high dynamic underbalance after two runs in a low-pressure reservoir with balanced well-bore fluids.
8The company used another patented technology "Pure clean perforations system" to remove perforation debris and crushed-zone damage.
8As a result, ONGC ended up achieving a 330% increase in oil production and a 250% increase in tubing head pressure.
8Quite impressive indeed.
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8The technology was used in high sour gas conditions in the field.
8What Schlumberger created was a high dynamic underbalance after two runs in a low-pressure reservoir with balanced well-bore fluids.
8The company used another patented technology "Pure clean perforations system" to remove perforation debris and crushed-zone damage.
8As a result, ONGC ended up achieving a 330% increase in oil production and a 250% increase in tubing head pressure.
8Quite impressive indeed.
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There is a business opportunity available for entrepreneurs to set up LNG import and storage facilities on India's coastline.
8There is a huge gap supply and demand for LPG in India.
8The usual movement is of imported LNG from locations in the west coast to the deficit northern regions of the country
8India today imports around 50% of its LPG requirement to maintain the supply-demand balance, mostly from the Middle East Region. This demand and supply gap is set to increase with the domestic production remaining mostly static and demand projections showing substantial growth in LPG.
8More so as the central government is pushing for increasing domestic LPG penetration, from existing level of 58% to 80% in the next few years. The west coast of India, particularly Gujarat, is crucial and an ideal location for handling LPG imports to cater to demand from the north.
8As the three National Oil Companies – IOCL, BPCL and HPCL -- have shown interest in such import and storage terminals, it makes sense to invest in building new facilities
8There is demand too from parallel marketers on strengthening and setting up of a big LPG import infrastructure.
8A clutch of private companies have already set up such terminals and there is scope for more
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8There is a huge gap supply and demand for LPG in India.
8The usual movement is of imported LNG from locations in the west coast to the deficit northern regions of the country
8India today imports around 50% of its LPG requirement to maintain the supply-demand balance, mostly from the Middle East Region. This demand and supply gap is set to increase with the domestic production remaining mostly static and demand projections showing substantial growth in LPG.
8More so as the central government is pushing for increasing domestic LPG penetration, from existing level of 58% to 80% in the next few years. The west coast of India, particularly Gujarat, is crucial and an ideal location for handling LPG imports to cater to demand from the north.
8As the three National Oil Companies – IOCL, BPCL and HPCL -- have shown interest in such import and storage terminals, it makes sense to invest in building new facilities
8There is demand too from parallel marketers on strengthening and setting up of a big LPG import infrastructure.
8A clutch of private companies have already set up such terminals and there is scope for more
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The curious case of how MS and HSD consumption showed no increase in the period between 1995-2005 has been a subject of much debate.
8In that period, transport sector fuel consumption remains flat even as over the same period, the number of registered vehicles increased threefold, freight activity (tonne-km) shot up more than two times, while gross domestic product (GDP) per capita went up by more than 5% annually.
8A research paper now claims that there was a counting error somewhere even though the official version is that consumption was flat on account of higher fuel efficiency.
8The paper then goes on to add that it is imperative to have a bottom-up statistical validation of top-down data, or else crucial facets of the Indian petroleum product consumption story will be missed entirely by policy makers.
8What is more, accurate data is necessary for clear policy formulations in the distribution segment of the oil and gas industry.
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8In that period, transport sector fuel consumption remains flat even as over the same period, the number of registered vehicles increased threefold, freight activity (tonne-km) shot up more than two times, while gross domestic product (GDP) per capita went up by more than 5% annually.
8A research paper now claims that there was a counting error somewhere even though the official version is that consumption was flat on account of higher fuel efficiency.
8The paper then goes on to add that it is imperative to have a bottom-up statistical validation of top-down data, or else crucial facets of the Indian petroleum product consumption story will be missed entirely by policy makers.
8What is more, accurate data is necessary for clear policy formulations in the distribution segment of the oil and gas industry.
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The PNGRB's draft regulations for common carrier regulations for petroleum and petroleum product pipelines seem to have evinced a keen interest among stakeholders.
8There is a lot at stake here, both for owners of the pipelines and those who will be their users>
Comments have poured in from:
8University of Petroleum & Energy Studies (UPES)
8Association of Private Airport Operators (APAO)
8M/s GAIL (India) Limited
8Hindustan Petroleum Corporation Limited (HPCL)
8International Air Transport Association (IATA)
8Shell
8MRPL
8VVSPL (HPCL) Vishakhapatnam.
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8There is a lot at stake here, both for owners of the pipelines and those who will be their users>
Comments have poured in from:
8University of Petroleum & Energy Studies (UPES)
8Association of Private Airport Operators (APAO)
8M/s GAIL (India) Limited
8Hindustan Petroleum Corporation Limited (HPCL)
8International Air Transport Association (IATA)
8Shell
8MRPL
8VVSPL (HPCL) Vishakhapatnam.
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The rebalancing of the oil market when the pile up in stocks begin to whittle down is still at least one year away, according to a recent presentation.
8Stocks are going to turn negative only by mid 2017 and that's when prices are likely to firm up sharply.
8More importantly, production postponed -- in pre-FIB terms -- is going to reach a record 3 million barrels per day by year 2024.
8The decline is output going to be sharp beginning from 2017 onwards going up to 2025.
8Bulk of the decline will be in deepwater production but shallow water production, followed by a sharp fall in oil sand output will also be hit. There will also be a significant decline in conventional onshore production as well.
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8Stocks are going to turn negative only by mid 2017 and that's when prices are likely to firm up sharply.
8More importantly, production postponed -- in pre-FIB terms -- is going to reach a record 3 million barrels per day by year 2024.
8The decline is output going to be sharp beginning from 2017 onwards going up to 2025.
8Bulk of the decline will be in deepwater production but shallow water production, followed by a sharp fall in oil sand output will also be hit. There will also be a significant decline in conventional onshore production as well.
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Gujarat State Petronet Ltd (GSPL) has opposed GAIL's attempt to build a pipeline to evacuate fresh volumes of gas available from ONGC's North Tapti fields at the Suvali terminal in Gujarat to GAIL's high pressure trunk Hazira-Vijaipur-Jagdishput (HVJ) and Dahej-Vijaipur pipeline network (DVPL) that is 38 km away.
8GSPL claims that it already has a pipeline in place to do the evacuation and the GAIL line will only mean a duplication of effort.
8GSPL has also called GAIL's bluff by alleging that GAIL is openly seeking to inject the extra gas into the DVJ-DVPL network even though GAIL had earlier declared that it was unable to provide its capacity on a common carrier basis as it had zero extra capacity.
8Even after GAIL had made that declaration, it is trying to transport additional quantities through this network, GSPL has charged.
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8GSPL claims that it already has a pipeline in place to do the evacuation and the GAIL line will only mean a duplication of effort.
8GSPL has also called GAIL's bluff by alleging that GAIL is openly seeking to inject the extra gas into the DVJ-DVPL network even though GAIL had earlier declared that it was unable to provide its capacity on a common carrier basis as it had zero extra capacity.
8Even after GAIL had made that declaration, it is trying to transport additional quantities through this network, GSPL has charged.
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GSPL is also accusing GAIL of arm twisting tactics in what is being termed as a blatant attempt to protect and enhance its gas market share in the region
8GSPL has alleged that what GAIL wants to do is to take the gas from the North Tapti fields and supply it to customers in the region such as NTPC and Kribhco through "bundled contracts" by building a parallel line to that of GSPL.
8These clients can easily be served by GSPL's current pipeline network
8The aim is to coerce GSPL out of doing business with its clients by denying it the requisite flexibility even though GSPL's tariffs are far lower than that of GAIL, the Gujrat based pipeline company complained.
8The GAIL pipeline will be in contravention of the PNGRB Act that disallows infractuous investments in parallel pipelines, GSPL has claimed.
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8GSPL has alleged that what GAIL wants to do is to take the gas from the North Tapti fields and supply it to customers in the region such as NTPC and Kribhco through "bundled contracts" by building a parallel line to that of GSPL.
8These clients can easily be served by GSPL's current pipeline network
8The aim is to coerce GSPL out of doing business with its clients by denying it the requisite flexibility even though GSPL's tariffs are far lower than that of GAIL, the Gujrat based pipeline company complained.
8The GAIL pipeline will be in contravention of the PNGRB Act that disallows infractuous investments in parallel pipelines, GSPL has claimed.
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GAIL has taken the example of how H-Energy was given permission to run a pipeline to Dabhol from its proposed Jaigarh LNG terminal despite objections from GAIL that it had a pipeline in place nearly that could have ferried the gas.
8GAIL had at that point claimed that its Dabhol-Bangalore pipeline was the nearest pipeline, just 22 km from the LNG terminal.
8But nevertheless, H-Energy was given permission by the PNGRB to build a pipeline to Dabhol, GAIL argues.
8GAIL is now using the same example, ironically, to counter a similar argument by GSPL for offtake of gas from the Suvali terminal.
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8GAIL had at that point claimed that its Dabhol-Bangalore pipeline was the nearest pipeline, just 22 km from the LNG terminal.
8But nevertheless, H-Energy was given permission by the PNGRB to build a pipeline to Dabhol, GAIL argues.
8GAIL is now using the same example, ironically, to counter a similar argument by GSPL for offtake of gas from the Suvali terminal.
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Some companies can do a fantastic job of cost reduction while others cannot.
8A case at point is Norwegian major Stat Oil, mostly known for its deepwater assets.
8The company has done a massive revamp, so much so that its breakeven point has come down from $70/bbl in 2013 to $41/bbl in 2016
8What is more, only 29% of its capex was aimed at producing oil below $50/bbl in 2013 whereas the figure in 2016 is going to be 82%.
8Statoil also claims that it has a significantly lower carbon footprint than its peers in the production of oil and gas. The industry average was 18 kg CO2/boe whereas Statoil's figure was just 11 in 2014. Statoil's figure has now gone down to 10 kg CO2/boe in 2015 and the target for 2020 is 9 CO2/boe
8And Statoil is delivering more than what it had promised. In 2015, the company said it will be able to produce energy efficiency gains of $1.7 billion but ended up delivering gains of $1.9 billion.
8Then again, it said it would reduce its investment programme by $2 billion but it ended up reducing expenses by $5 billion.
8Then again, the management said it would be able to raise production by 2% annually between 2014 and 2016 but posted a 6% organic growth in 2015 itself.
Comment: It is time for ONGC and OIL too to show some measurable efficiency gains just like companies such as Statoil and CNOOC (which we had featured earlier) are doing. Also the duo need to bring down its cost of production of oil and it will be commendable if, like Statoil, it can also bring down its carbon footprint. It is time for the MOU between the government and the oil companies to introduce new parameters on which their performance can be measured.
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8A case at point is Norwegian major Stat Oil, mostly known for its deepwater assets.
8The company has done a massive revamp, so much so that its breakeven point has come down from $70/bbl in 2013 to $41/bbl in 2016
8What is more, only 29% of its capex was aimed at producing oil below $50/bbl in 2013 whereas the figure in 2016 is going to be 82%.
8Statoil also claims that it has a significantly lower carbon footprint than its peers in the production of oil and gas. The industry average was 18 kg CO2/boe whereas Statoil's figure was just 11 in 2014. Statoil's figure has now gone down to 10 kg CO2/boe in 2015 and the target for 2020 is 9 CO2/boe
8And Statoil is delivering more than what it had promised. In 2015, the company said it will be able to produce energy efficiency gains of $1.7 billion but ended up delivering gains of $1.9 billion.
8Then again, it said it would reduce its investment programme by $2 billion but it ended up reducing expenses by $5 billion.
8Then again, the management said it would be able to raise production by 2% annually between 2014 and 2016 but posted a 6% organic growth in 2015 itself.
Comment: It is time for ONGC and OIL too to show some measurable efficiency gains just like companies such as Statoil and CNOOC (which we had featured earlier) are doing. Also the duo need to bring down its cost of production of oil and it will be commendable if, like Statoil, it can also bring down its carbon footprint. It is time for the MOU between the government and the oil companies to introduce new parameters on which their performance can be measured.
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ONGC has drawn up a Rs 366 crore plan to drill 11 exploration shale oil and gas wells in Gujarat.
8The company is doing this on account of the government's mandate to identify a minimum of 50 nomination blocks where it will take up shale gas and oil exploration.
8The policy also stipulates guidelines regarding environmental clearance and water sourcing and management of shale gas and oil activities.
8It is outlined in the policy document that the existing guidelines are to be followed for carrying out base line EIA studies.
8ONGC has a commitment to collect data and drill at least one well in each of the identified blocks in Phase-I, which will expire in March, 2017.
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8The company is doing this on account of the government's mandate to identify a minimum of 50 nomination blocks where it will take up shale gas and oil exploration.
8The policy also stipulates guidelines regarding environmental clearance and water sourcing and management of shale gas and oil activities.
8It is outlined in the policy document that the existing guidelines are to be followed for carrying out base line EIA studies.
8ONGC has a commitment to collect data and drill at least one well in each of the identified blocks in Phase-I, which will expire in March, 2017.
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ONGC has made it clear that an assessment well for shale gas and oil will be no different from a typical conventional exploratory.
8The exploratory well will be primarily vertical and will be no different from a conventional exploratory well in terms of the target depth, casing policy, water consumption, drilling, testing and completion plan.
8In these wells, the main objective will be to collect conventional cores from the main source rock shale formations and record some advanced log suits for proper evaluation of various properties (geochemical, geological, petro physical, mineralogical and geo-mechanical etc.).
8Based on these parameters, an estimate of the shale gas and oil in-place will be made.
8Shale being relatively tight in comparison to conventional sand or carbonate reservoirs, have very low permeability and are not likely to flow hydrocarbon without hydro-fracturing.
8At this stage however ONGC will only tap single zones for hydro-fracturing unlike complex and extensive multistage hydro-fracturing operations in a typical shale gas well which requires excessively large quantities of fresh water and chemicals. The water requirement for hydro-fracturing in the proposed assessment wells will not be exceeding 400-600 M3 per zone per well.
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8The exploratory well will be primarily vertical and will be no different from a conventional exploratory well in terms of the target depth, casing policy, water consumption, drilling, testing and completion plan.
8In these wells, the main objective will be to collect conventional cores from the main source rock shale formations and record some advanced log suits for proper evaluation of various properties (geochemical, geological, petro physical, mineralogical and geo-mechanical etc.).
8Based on these parameters, an estimate of the shale gas and oil in-place will be made.
8Shale being relatively tight in comparison to conventional sand or carbonate reservoirs, have very low permeability and are not likely to flow hydrocarbon without hydro-fracturing.
8At this stage however ONGC will only tap single zones for hydro-fracturing unlike complex and extensive multistage hydro-fracturing operations in a typical shale gas well which requires excessively large quantities of fresh water and chemicals. The water requirement for hydro-fracturing in the proposed assessment wells will not be exceeding 400-600 M3 per zone per well.
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For reference purposes, the website also carries here the details of drilling facilities that will be needed to undertake the shale exploration work.
The website carries here detailed information on:
8Drilling muds
8Power generation requirements
8Water requirements
8Waste water dispersal
8Removal of solids
8Drilling cuts and waste mud treatment
8Testing
8Man power requirement.
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The website carries here detailed information on:
8Drilling muds
8Power generation requirements
8Water requirements
8Waste water dispersal
8Removal of solids
8Drilling cuts and waste mud treatment
8Testing
8Man power requirement.
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ONGC's shale oil and gas operation will be a pioneering effort in some sense. In this context, the website carries here information on:
8Ingredients involved in water based drilling fluids
8Additives required and their functions in these water based drilling fluids
8An overview of the challenges of hydro fracturing in blocks concerned.
8Composition of hydro fracturing fluid for an average 40 MT hydro fracturing job.
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8Ingredients involved in water based drilling fluids
8Additives required and their functions in these water based drilling fluids
8An overview of the challenges of hydro fracturing in blocks concerned.
8Composition of hydro fracturing fluid for an average 40 MT hydro fracturing job.
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For the oil and gas industry, it is important to keep track of various projections made on how global oil supply and demand will pan out in the immediate future.
8For reference purposes, the website carries here several scenarios projected by some of the world's best research agencies.
8Wood Mackenzie's near term output report claims that global oil supply peaked in Q2 2015, as US unconventional oil went into decline and the world put off US$280 billion of new capex investment.
8In 2016, the total global supply is projected to fall 0.1 million barrels versus a growth of 2.4 million barrels in 2015. In 2017, there will be a slower rate of increase for global supply than the record pace seen in 2015.
8Barclays sees that balances for 2016 becoming substantially tighter than 2014 and 2015 with stock draws forecasted in Q4, 2016.
8RBC also projects four different price patterns going well into the future, all of which show the curves moving upwards
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8For reference purposes, the website carries here several scenarios projected by some of the world's best research agencies.
8Wood Mackenzie's near term output report claims that global oil supply peaked in Q2 2015, as US unconventional oil went into decline and the world put off US$280 billion of new capex investment.
8In 2016, the total global supply is projected to fall 0.1 million barrels versus a growth of 2.4 million barrels in 2015. In 2017, there will be a slower rate of increase for global supply than the record pace seen in 2015.
8Barclays sees that balances for 2016 becoming substantially tighter than 2014 and 2015 with stock draws forecasted in Q4, 2016.
8RBC also projects four different price patterns going well into the future, all of which show the curves moving upwards
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The website carries here a detailed medium to long term global demand-supply forecast for LNG.
8The data provides source wise supply projections and concomitant demand right up to the year 2040.
8Global contracted supply is expected to be more than 30 MMTPA short of demand by 2022 and a whopping 120 MMTPA short by 2025, driven by demand increases and old contracts roll out
8Importantly, more than 25 MMTPA of net existing contracts expire in Japan, Korea and Taiwan between 2020 and 2025, leaving the region more than 40 MMTPA short.
8So a new supplier with the right pricing point can make an entry at these points in time into the game.
8The data shows year-wise, region-wise increase in incremental demand right up to the year 2040.
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8The data provides source wise supply projections and concomitant demand right up to the year 2040.
8Global contracted supply is expected to be more than 30 MMTPA short of demand by 2022 and a whopping 120 MMTPA short by 2025, driven by demand increases and old contracts roll out
8Importantly, more than 25 MMTPA of net existing contracts expire in Japan, Korea and Taiwan between 2020 and 2025, leaving the region more than 40 MMTPA short.
8So a new supplier with the right pricing point can make an entry at these points in time into the game.
8The data shows year-wise, region-wise increase in incremental demand right up to the year 2040.
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The government is planning to involve public sector companies in the Made in India campaign not just by pushing for a 10% purchase price preference for local companies but by also pumping in start-up capital into them.
8New start-ups can look for seed capital from the oil majors now.
8The new policy framework is now under consideration of the petroleum ministry.
8A draft paper was put out for comments from the public.
8The exact modalities of how this capital infusion plan is going to pan out is to be seen.
8The timing of the Made in India plan may not be just right given the massive recession in the upstream business, where projects worth $280 billion has been put in cold storage.
8This has brought about a precipitous fall in the prices of equipment and services and any start-up, even if it were to go on stream a few years down the line, will face cost pressures even with a 10% advantage.
8There is also a basic capacity over supply problem that a start-up will have to take into account. For regardless of the price support, older units elsewhere will be in a better position to bid at competitive prices than start-ups, even with a 10% advantage.
8The other challenge will be to find the requisite technical edge in a highly technology centric industry and a market global enough to justify the benefits of economies of scale.
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8New start-ups can look for seed capital from the oil majors now.
8The new policy framework is now under consideration of the petroleum ministry.
8A draft paper was put out for comments from the public.
8The exact modalities of how this capital infusion plan is going to pan out is to be seen.
8The timing of the Made in India plan may not be just right given the massive recession in the upstream business, where projects worth $280 billion has been put in cold storage.
8This has brought about a precipitous fall in the prices of equipment and services and any start-up, even if it were to go on stream a few years down the line, will face cost pressures even with a 10% advantage.
8There is also a basic capacity over supply problem that a start-up will have to take into account. For regardless of the price support, older units elsewhere will be in a better position to bid at competitive prices than start-ups, even with a 10% advantage.
8The other challenge will be to find the requisite technical edge in a highly technology centric industry and a market global enough to justify the benefits of economies of scale.
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Even as BPCL is implementing a plan to raise the refining capacity of its Kochi refinery from 9.5 to 15.5 MMTPA -- which will be capable of processing of 100% high sulphur crude while producing Euro-IV specifications products -- the company has drawn up another Rs 5780 crore plan to upgrade the fuel quality of the refinery straight to then Euro-VI category and then expand the refinery to 20 MMTPA.
8The new investment has been driven by the government's decision to advance the roll out of BS-VI grade MS and HSD as a pollution control measure from 2020.
8The plan is to go for a two-stage investment process. The first phase involves switching over to BS-VI grade first, using 100% high sulphur crude. The plan is also to use around 400 KTA of Vacuum Residue (including 10% cutter stock) that will be produced in BPCL's Mumbai refinery and transported to Kochi for processing.
8It is also toying with the idea of lumping the fuel upgradation plan with expanding Kochi refinery's capacity from 15.5 MMTPA to the design limit of 16.55 MMTPA.
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8The new investment has been driven by the government's decision to advance the roll out of BS-VI grade MS and HSD as a pollution control measure from 2020.
8The plan is to go for a two-stage investment process. The first phase involves switching over to BS-VI grade first, using 100% high sulphur crude. The plan is also to use around 400 KTA of Vacuum Residue (including 10% cutter stock) that will be produced in BPCL's Mumbai refinery and transported to Kochi for processing.
8It is also toying with the idea of lumping the fuel upgradation plan with expanding Kochi refinery's capacity from 15.5 MMTPA to the design limit of 16.55 MMTPA.
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What will the fuel upgradation plan involve in terms of fresh orders for equipment and services?
The following equipment and services are to be needed:
8A naphtha hydrotreater unit with a capacity of 1.5 MMTPA
8A light naphtha isomerization unit (0.71 MMTPA)
8A continuous catalytic refomer unit (0.80 MMTPA)
8New utility systems that involve the ordering of:
8Cooling tower cells
8Recirculating Cooling water punps
8Cooling water make up pumps
In the Instrument Air Systems, the following requirement are going to come up:
8Instrument air dryer
8Air compressor
8LP air receiver
A Frame VI GTG with a capacity of 33 MW will have to be ordered as also a new flare system.
A set of new intermediate tanks and pumps be needed too.
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The following equipment and services are to be needed:
8A naphtha hydrotreater unit with a capacity of 1.5 MMTPA
8A light naphtha isomerization unit (0.71 MMTPA)
8A continuous catalytic refomer unit (0.80 MMTPA)
8New utility systems that involve the ordering of:
8Cooling tower cells
8Recirculating Cooling water punps
8Cooling water make up pumps
In the Instrument Air Systems, the following requirement are going to come up:
8Instrument air dryer
8Air compressor
8LP air receiver
A Frame VI GTG with a capacity of 33 MW will have to be ordered as also a new flare system.
A set of new intermediate tanks and pumps be needed too.
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The expansion of the Kochi refinery to 20 MMTPA will involve the ordering of more equipment, including:
8A new integrated VGO-HDT and a DHDS unit
8A sulphur recovery unit
8An existing CDU furnace to be replaced with a new one
8An existing VDU to be substituted with a new one
8A CDU desalter to be replaced with a new two stage desalter
8There is a long list of utility requirements, including cooling tower cells, recirculating cooling water pumps, cooling water make up pumps, an instrument air dryer, an air compressor, an LP air and a flare system.
Interestingly no new offsite crude storage facilities are envisaged but there will be a few intermediate tanks and pumps that will have to be built.
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8A new integrated VGO-HDT and a DHDS unit
8A sulphur recovery unit
8An existing CDU furnace to be replaced with a new one
8An existing VDU to be substituted with a new one
8A CDU desalter to be replaced with a new two stage desalter
8There is a long list of utility requirements, including cooling tower cells, recirculating cooling water pumps, cooling water make up pumps, an instrument air dryer, an air compressor, an LP air and a flare system.
Interestingly no new offsite crude storage facilities are envisaged but there will be a few intermediate tanks and pumps that will have to be built.
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The IRR for the capacity expansion project of the Kochi refinery is far more attractive than the fuel upgradation plan.
8The pre tax IRR for the upgradation is a high 26.93%, making it a must-do investment.
8The post tax IRR is 22.86%
8On the fuel quality improvement project, the IRR just touches the hurdle rate of 10%.
8For reference purposes, the website carries here a detailed sensitivity analysis of both the projects, taking different pricing parameters into account.
8Also given here are disaggregated details of project costs.
8As also comprehensive data on annual operating cost, sales realizations and cash flows.
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8The pre tax IRR for the upgradation is a high 26.93%, making it a must-do investment.
8The post tax IRR is 22.86%
8On the fuel quality improvement project, the IRR just touches the hurdle rate of 10%.
8For reference purposes, the website carries here a detailed sensitivity analysis of both the projects, taking different pricing parameters into account.
8Also given here are disaggregated details of project costs.
8As also comprehensive data on annual operating cost, sales realizations and cash flows.
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Feb 04 : BPCL to invest another Rs 5780 crore in Kochi refinery-V: Details of price estimations made
All the financial calculations are based on a given set of prices in the future.
8For reference purposes, the website carries here a set of forecast prices taken by BPCL to arrive at its IRR calculations.
8The three year average prices are throwing up the wrong kind of numbers given that ruling prices were high. So these have to be moderated and possible "futuristic prices" are taken into account.
8An average price yardstick is taken for the period 2016-2021.
8Refinery prices are dependent on spreads, so price estimates are not overtly important as they are while calculating the IRR of an E&P investment but nevertheless the future price assumptions will make for interesting reading for those studying the Indian refining sector.
8Cost estimates are given for all refinery feedstock items while selling prices have been estimated for a range of refinery products.
8Utility pricing estimates are also given here for steam, oxygen, water, power, nitrogen and oxygen.
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8For reference purposes, the website carries here a set of forecast prices taken by BPCL to arrive at its IRR calculations.
8The three year average prices are throwing up the wrong kind of numbers given that ruling prices were high. So these have to be moderated and possible "futuristic prices" are taken into account.
8An average price yardstick is taken for the period 2016-2021.
8Refinery prices are dependent on spreads, so price estimates are not overtly important as they are while calculating the IRR of an E&P investment but nevertheless the future price assumptions will make for interesting reading for those studying the Indian refining sector.
8Cost estimates are given for all refinery feedstock items while selling prices have been estimated for a range of refinery products.
8Utility pricing estimates are also given here for steam, oxygen, water, power, nitrogen and oxygen.
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For reference purposes, the website carries here what would arguably be the comprehensive set of data and parameters ever on an Indian refinery
8The report carries a multiple paramters covering all aspects of the Kochi refinery's operations
Details are given on
8Disaggregated cost and IRR scenarios for both upgradation and expansion of the refinery.
8Details of various studies undertaken on the refinery
8Comprehensive details of raw material consumption in terms of crude mix, RLNG consumption, methanol and benzene
8Comprehensive material balance
8Detailed yield tables of various units
8Detailed product specifications and properties
8Detailed technical specifications of each unit, in terms of capacity, licensor, feed blend and onstream hours
8Crude and product assays
8Full tankage details
8Full utility and offsite matrices
8Complete product configuration matrix
8Process description for those who want to know more
8Detailed logistics involved with the refinery
8Sulphur and hydrogen balance
8Full project schedule
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8The report carries a multiple paramters covering all aspects of the Kochi refinery's operations
Details are given on
8Disaggregated cost and IRR scenarios for both upgradation and expansion of the refinery.
8Details of various studies undertaken on the refinery
8Comprehensive details of raw material consumption in terms of crude mix, RLNG consumption, methanol and benzene
8Comprehensive material balance
8Detailed yield tables of various units
8Detailed product specifications and properties
8Detailed technical specifications of each unit, in terms of capacity, licensor, feed blend and onstream hours
8Crude and product assays
8Full tankage details
8Full utility and offsite matrices
8Complete product configuration matrix
8Process description for those who want to know more
8Detailed logistics involved with the refinery
8Sulphur and hydrogen balance
8Full project schedule
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Gujarat Gas has petitioned the PNGRB, which is in the midst of amending the rules for CGD entities, to take into account the following points:
8The terminology of "Transportation Rate" as enshrined in Section 2 (zn) and Section 22 of the PNGRB Act should be used interchangeably with "Transportation Tariff" to ensure that there is no discrepancy between the two in the future.
8A debate is on to delink CNG stations from the CGD business but this may conflict with the draft guidelines brought out by the petroleum ministry on the subject. The Board should clarify its position before the ministry so as to ensure that there is no dispute between the ministry and the board over the subject.
8There is also an anomaly on providing compensation to the customer in case of non-availability of gas for more than 12 hours. The condition seems to apply only to those entities authorized by the Board but not to those authorized under Regulation 17, thereby creating a disparity in treatment.
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8The terminology of "Transportation Rate" as enshrined in Section 2 (zn) and Section 22 of the PNGRB Act should be used interchangeably with "Transportation Tariff" to ensure that there is no discrepancy between the two in the future.
8A debate is on to delink CNG stations from the CGD business but this may conflict with the draft guidelines brought out by the petroleum ministry on the subject. The Board should clarify its position before the ministry so as to ensure that there is no dispute between the ministry and the board over the subject.
8There is also an anomaly on providing compensation to the customer in case of non-availability of gas for more than 12 hours. The condition seems to apply only to those entities authorized by the Board but not to those authorized under Regulation 17, thereby creating a disparity in treatment.
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RIL is planning to submit the draft Environment Impact Assessemnt (EIA) report on expanding its Jamnagar refinery from 68.25 MMTPA to a massive 88.25 MMTPA in February, 2016.
8What the company plans to do is to add a fifth crude train of 20 MMTPA.
8This is going to be a big expansion by any standard but even as the company goes through the EIA process, the actual implementation date has not been drawn up as yet.
8There are also plans to switch 450 MW out of its existing 2100 MW captive power plant to coal though details have not been finalized yet.
8A new polymer plant is to be set up too, to manufacture Ethylene Propylene Diene Monomber Rubber and Poly Isoprene Rubber.
8RIL is soft peddling investments in these projects as is evident from the fact that it has sought a one year extension to the two-year Terms of Reference that was to expire in May, 2016.
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8What the company plans to do is to add a fifth crude train of 20 MMTPA.
8This is going to be a big expansion by any standard but even as the company goes through the EIA process, the actual implementation date has not been drawn up as yet.
8There are also plans to switch 450 MW out of its existing 2100 MW captive power plant to coal though details have not been finalized yet.
8A new polymer plant is to be set up too, to manufacture Ethylene Propylene Diene Monomber Rubber and Poly Isoprene Rubber.
8RIL is soft peddling investments in these projects as is evident from the fact that it has sought a one year extension to the two-year Terms of Reference that was to expire in May, 2016.
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The Supreme Court may have paved the way for laying the GAIL's Kochi-Kuttanad-Bengaluru pipeline through farm land instead of along state highways as sought by the state government, but the framers in the state seem unhappy with the order.
8Protests are likely but in what form they will take remains to be seen.
8Farmers' associations are planning to hold meetings in the next few days to decide on an action plan.
8Goaded by the Supreme Court, GAIL seems to be willing to raise the compensation package but whether that will be acceptable to the farmers remains to be seen.
8Some of the fears expressed by the farmers -- such as the pipeline making agricultural operations unviable or bringing down value of adjacent land -- seem unfounded.
8Eventually, the farmers may have to be compensated heavily before they agree to the laying of the pipeline.
8The ROU cost will go up significantly as a percentage of total cost, thereby making pipeline's cost economics that much more fragile.
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8Protests are likely but in what form they will take remains to be seen.
8Farmers' associations are planning to hold meetings in the next few days to decide on an action plan.
8Goaded by the Supreme Court, GAIL seems to be willing to raise the compensation package but whether that will be acceptable to the farmers remains to be seen.
8Some of the fears expressed by the farmers -- such as the pipeline making agricultural operations unviable or bringing down value of adjacent land -- seem unfounded.
8Eventually, the farmers may have to be compensated heavily before they agree to the laying of the pipeline.
8The ROU cost will go up significantly as a percentage of total cost, thereby making pipeline's cost economics that much more fragile.
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The offshore rig market seems to be in turmoil.
8Hiring rates have plunged and older rigs are now getting replaced by more efficient rigs.
8What is more more efficient onshore and offshore rigs will likely push older, less efficient rigs out of service because the cost of upgrading is too high,
8The biggest losses will be in mid-water rigs—floaters built for water depths from 500 to 3,000 feet -- as jobs in water deeper than 1,500 ft will generally be done by newer deepwater rigs, he said.
8Owners of the old rigs will find it difficult to scrap them either because steel prices are down, reducing the value of the scrap.
8It will take a long time to clean up the over supply.
8The expectation is that the market will remain poor right through 2017, with changes of recovery of day rates only in 2018-19.
Comment: ONGC needs to learn a lesson here. It needs to phase the ageing fleet of old private rigs and substitute them with more efficient new generation rigs. Efficiency must improve and for this reason alone the old fleet must be discarded.
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8Hiring rates have plunged and older rigs are now getting replaced by more efficient rigs.
8What is more more efficient onshore and offshore rigs will likely push older, less efficient rigs out of service because the cost of upgrading is too high,
8The biggest losses will be in mid-water rigs—floaters built for water depths from 500 to 3,000 feet -- as jobs in water deeper than 1,500 ft will generally be done by newer deepwater rigs, he said.
8Owners of the old rigs will find it difficult to scrap them either because steel prices are down, reducing the value of the scrap.
8It will take a long time to clean up the over supply.
8The expectation is that the market will remain poor right through 2017, with changes of recovery of day rates only in 2018-19.
Comment: ONGC needs to learn a lesson here. It needs to phase the ageing fleet of old private rigs and substitute them with more efficient new generation rigs. Efficiency must improve and for this reason alone the old fleet must be discarded.
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Is Saudi Arabia winning the battle against US shale gas producers?
8Reports coming in of later claim that the US industry is running into dire trouble..
8Huge numbers of workers are getting laid off and at least nine US oil and gas companies have filed for bankruptcies.
8Many service providers have gone under. There are reports that at least 12 pressure pumping companies of the 50 have gone out of business. The expectation is that there will be a 25% reduction in pressure pumping capacity, bringing supply in line with demand, allowing the market to begin to recover no later than 2017.
8While US producers proved surprisingly resilient in 2015, that does not appear sustainable. Lower prices have led to steep reductions in reserve estimates in high-cost plays, increasing pressure from investors and
lenders to deal with the problems created by dwindling cash flows.
8On the other hand, the only place where rigs counts are going up is in the Middle East. These countries possess rich conventional, onshore oil reserves, where the cost of lifting a barrel is still solidly profitable at prices below USD 20/bbl. These countries have millions of barrels a day of capacity and plan to produce it.
8Saudi Arabia has established that it is once again the dominant force in the world oil markets, and it is planning for lingering low prices. Its 2016 budget reduces its sizeable deficit by cutting subsidies for everything from energy to water, and it assumes an average Brent oil price at USD 37/bbl in 2016.
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8Reports coming in of later claim that the US industry is running into dire trouble..
8Huge numbers of workers are getting laid off and at least nine US oil and gas companies have filed for bankruptcies.
8Many service providers have gone under. There are reports that at least 12 pressure pumping companies of the 50 have gone out of business. The expectation is that there will be a 25% reduction in pressure pumping capacity, bringing supply in line with demand, allowing the market to begin to recover no later than 2017.
8While US producers proved surprisingly resilient in 2015, that does not appear sustainable. Lower prices have led to steep reductions in reserve estimates in high-cost plays, increasing pressure from investors and
lenders to deal with the problems created by dwindling cash flows.
8On the other hand, the only place where rigs counts are going up is in the Middle East. These countries possess rich conventional, onshore oil reserves, where the cost of lifting a barrel is still solidly profitable at prices below USD 20/bbl. These countries have millions of barrels a day of capacity and plan to produce it.
8Saudi Arabia has established that it is once again the dominant force in the world oil markets, and it is planning for lingering low prices. Its 2016 budget reduces its sizeable deficit by cutting subsidies for everything from energy to water, and it assumes an average Brent oil price at USD 37/bbl in 2016.
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The world's eyes seem to be on India when it comes to global warming.
8Critics are scared that India’s rapidly growing energy needs and reliance on coal threatens to quickly eat away at the global carbon budget.
8India’s coal-fired power plant capacity surged from 90,000 MW in 2010 to 165000 in 2014, a rate equivalent to adding a large coal-fired power plant every two weeks.
8This pace is set to continue for the next few years, with approximately 80,000 MW of capacity under construction.
8India’s planned coal expansion could add a total of 57 Gt of CO2 equivalent emissions between 2013 and 2050.21.
8There are over 200,000 MW worth of new coal-fired power plant projects in various proposal, planning and clearance stages in India.
8To bridge the gap between the domestic coal supply and the enormous demand for domestic coal that would be created by these projects, the Modi administration set a goal of increasing coal production from Coal India Ltd upto one billion tonnes a year by 2019, and with another 500 MMT expected from other private or captive mining sources.
8They also pledged to “clear hurdles” to new mines, including environmental and social safeguards.
8To achieve this target, coal production would have to grow by 9 percent annually. By comparison, from 2009 to 2014, coal mining increased by only 6 percent. India also missed its target to ramp up coal output to 680 million tons by the end of the 11th five-year plan (2007-12), as production touched only 540 million tonnes in 2011/12
8India’s domestic supply target reflects the government’s intention to aggressively develop India’s coal resources, and therefore presents a major threat to the 2 ?C limit.
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8Critics are scared that India’s rapidly growing energy needs and reliance on coal threatens to quickly eat away at the global carbon budget.
8India’s coal-fired power plant capacity surged from 90,000 MW in 2010 to 165000 in 2014, a rate equivalent to adding a large coal-fired power plant every two weeks.
8This pace is set to continue for the next few years, with approximately 80,000 MW of capacity under construction.
8India’s planned coal expansion could add a total of 57 Gt of CO2 equivalent emissions between 2013 and 2050.21.
8There are over 200,000 MW worth of new coal-fired power plant projects in various proposal, planning and clearance stages in India.
8To bridge the gap between the domestic coal supply and the enormous demand for domestic coal that would be created by these projects, the Modi administration set a goal of increasing coal production from Coal India Ltd upto one billion tonnes a year by 2019, and with another 500 MMT expected from other private or captive mining sources.
8They also pledged to “clear hurdles” to new mines, including environmental and social safeguards.
8To achieve this target, coal production would have to grow by 9 percent annually. By comparison, from 2009 to 2014, coal mining increased by only 6 percent. India also missed its target to ramp up coal output to 680 million tons by the end of the 11th five-year plan (2007-12), as production touched only 540 million tonnes in 2011/12
8India’s domestic supply target reflects the government’s intention to aggressively develop India’s coal resources, and therefore presents a major threat to the 2 ?C limit.
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For many people global warming is a very sensitive issue and passions run high.
8These are people who argue that the cumulative carbon budget between 2011 and 2050 is only around 870-1,240 Gt CO2, which gives a better-than-even chance of avoiding warming above 2 ?C..
8Already a third of that budget has already been spent from 2000 to 2011 alone. To reach a four-in-five chance of preventing catastrophe, the world now has approximately 565 Gt CO2 left in the carbon budget until 2050.
8To limit warming to 1.5 ?C or below—an ambitious goal stated in the Paris Agreement—emissions would need to be limited in accordance with an even stricter budget.
8But if the world’s proven reserves are developed before 2050, we will miss even the high-end estimated budget for a 50 percent chance of limiting warming to 2 ?C, three times over.
8The calculations for the low-end estimate indicate the need for even trimmer carbon budgets, which would provide a better chance of avoiding catastrophe.
8The argument here is that unless these reserves stay underground or beneath the ocean, any chance of limiting warming to 2°C or less will be lost.
8A recent study published in Nature recommends that a third of oil reserves, half of gas reserves, and more than 80 percent of current coal reserves worldwide need to be left alone and remain unused in order to meet the 2°C target.
8The authors stress that, in order to stave off catastrophic climate change, the overwhelming majority of the large coal reserves in China, Russia and the United States as well as more than 260 billion barrels of oil reserves and 60 percent of gas reserves in the Middle East must all remain unused. Finally, the study finds that Arctic resources should be off-limits to development and that the exploration and usage of unconventional oil, like the high-carbon Canadian tar sands, undermines any efforts to limit climate change.
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8These are people who argue that the cumulative carbon budget between 2011 and 2050 is only around 870-1,240 Gt CO2, which gives a better-than-even chance of avoiding warming above 2 ?C..
8Already a third of that budget has already been spent from 2000 to 2011 alone. To reach a four-in-five chance of preventing catastrophe, the world now has approximately 565 Gt CO2 left in the carbon budget until 2050.
8To limit warming to 1.5 ?C or below—an ambitious goal stated in the Paris Agreement—emissions would need to be limited in accordance with an even stricter budget.
8But if the world’s proven reserves are developed before 2050, we will miss even the high-end estimated budget for a 50 percent chance of limiting warming to 2 ?C, three times over.
8The calculations for the low-end estimate indicate the need for even trimmer carbon budgets, which would provide a better chance of avoiding catastrophe.
8The argument here is that unless these reserves stay underground or beneath the ocean, any chance of limiting warming to 2°C or less will be lost.
8A recent study published in Nature recommends that a third of oil reserves, half of gas reserves, and more than 80 percent of current coal reserves worldwide need to be left alone and remain unused in order to meet the 2°C target.
8The authors stress that, in order to stave off catastrophic climate change, the overwhelming majority of the large coal reserves in China, Russia and the United States as well as more than 260 billion barrels of oil reserves and 60 percent of gas reserves in the Middle East must all remain unused. Finally, the study finds that Arctic resources should be off-limits to development and that the exploration and usage of unconventional oil, like the high-carbon Canadian tar sands, undermines any efforts to limit climate change.
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How will catastrophic climate change occur once global warming takes place?
8A paper argues that warming from fossil fuels puts the word's carbon sinks at risk.
8As permafrost melts and marsh land and swamps dry, they emit enormous quantities of carbon dioxide, furthering a chain reaction where the release of carbon results in a warmer world, which in turn releases more carbon.
8A study warned that 1.5°C of warming would be enough to melt the permafrost in Siberia, prompting the eventual release of hundreds of gigatons of carbon dioxide and methane, with grave consequences for the climate.
8In the Arctic, melting permafrost is releasing large amounts of methane and carbon dioxide into the atmosphere, creating a feedback loop that will prompt additional warming. A recent study examined 71 wetlands worldwide and found that melting permafrost is creating wetlands known as fens, which emit large amounts of methane. Another troubling feedback loop occurs in the permafrost itself, where warming temperatures trigger microbic decomposition, which produces heat and causes further thawing. Permafrost is expected to transition from a carbon sink to a carbon source before 2100.
8Already, the world is experiencing the dire consequences of climate change in the form of extreme weather events, including pervasive heat waves, droughts, floods, intense and destructive hurricanes and wildfires, and even monster snowstorms.
8Beating 2014’s record, 2015 has earned the distinction of having been the hottest year since record keeping began. Experts expect 2016 to be warmer still.
8The consequences of the mounting carbon emissions in our atmosphere are increasingly costly, and impossible to ignore.
8In this context, the campaign to “Keep It In The Ground,” seems to have gained momentum even though the movement itself does not have a concrete action plan yet on how it can be done.
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8A paper argues that warming from fossil fuels puts the word's carbon sinks at risk.
8As permafrost melts and marsh land and swamps dry, they emit enormous quantities of carbon dioxide, furthering a chain reaction where the release of carbon results in a warmer world, which in turn releases more carbon.
8A study warned that 1.5°C of warming would be enough to melt the permafrost in Siberia, prompting the eventual release of hundreds of gigatons of carbon dioxide and methane, with grave consequences for the climate.
8In the Arctic, melting permafrost is releasing large amounts of methane and carbon dioxide into the atmosphere, creating a feedback loop that will prompt additional warming. A recent study examined 71 wetlands worldwide and found that melting permafrost is creating wetlands known as fens, which emit large amounts of methane. Another troubling feedback loop occurs in the permafrost itself, where warming temperatures trigger microbic decomposition, which produces heat and causes further thawing. Permafrost is expected to transition from a carbon sink to a carbon source before 2100.
8Already, the world is experiencing the dire consequences of climate change in the form of extreme weather events, including pervasive heat waves, droughts, floods, intense and destructive hurricanes and wildfires, and even monster snowstorms.
8Beating 2014’s record, 2015 has earned the distinction of having been the hottest year since record keeping began. Experts expect 2016 to be warmer still.
8The consequences of the mounting carbon emissions in our atmosphere are increasingly costly, and impossible to ignore.
8In this context, the campaign to “Keep It In The Ground,” seems to have gained momentum even though the movement itself does not have a concrete action plan yet on how it can be done.
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Of India's total consumption of 135 mmscmd of gas, as much as 66 mmscmd is made of LNG.
8The fertilizer sector is the largest consumer, at 46 mmscmd of gas, followed by the power sector at 32 mmscmd.
8City Gas picks up 15 mmscmd of domestic gas. Surprisingly despite the priority in allocation of gas, over 6 mmscmd of supply in this segment is via the LNG route. This is because for industrial customers supplied by city gas networks, there is no priority allocation of domestic gas.
8As for fertilizers, as much as 26 mmscmd comes from domestic sources, while power corner another 23 mmscmd.
8Which are the sectors from where future demand is likely to come from?
8The 12th Five Year Plan has projected a demand of a massive 446 msmcmd in 2015-16, and of course, the bulk of it is unmet.
8The highest demand is in the power sector at 189 mmscmd followed by the fertilizer sector at 112 mmscmd.
8Indian demand is highly price sensitive and any projection can be way off the mark, all depending upon how prices fluctuate.
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8The fertilizer sector is the largest consumer, at 46 mmscmd of gas, followed by the power sector at 32 mmscmd.
8City Gas picks up 15 mmscmd of domestic gas. Surprisingly despite the priority in allocation of gas, over 6 mmscmd of supply in this segment is via the LNG route. This is because for industrial customers supplied by city gas networks, there is no priority allocation of domestic gas.
8As for fertilizers, as much as 26 mmscmd comes from domestic sources, while power corner another 23 mmscmd.
8Which are the sectors from where future demand is likely to come from?
8The 12th Five Year Plan has projected a demand of a massive 446 msmcmd in 2015-16, and of course, the bulk of it is unmet.
8The highest demand is in the power sector at 189 mmscmd followed by the fertilizer sector at 112 mmscmd.
8Indian demand is highly price sensitive and any projection can be way off the mark, all depending upon how prices fluctuate.
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